Financial Markets… Global stock markets inched lower on Tuesday as lingering uncertainty over U.S. fiscal and monetary policies weighed on market sentiment. The benchmark MSCI world equity index is down 0.1% with early losses in Asian markets and a small gain in Europe. Developing-country shares also declined with weakening Russian and Chinese shares, trimming their Fed’s inspired gains, and U.S. equities opened slightly lower in morning trading session after the S&P 500 and the Dow indexes rose to new record highs last week.

U.S. Treasuries and German bunds extended their gains today as the cautious market sentiment boosted demand for safe-haven government securities. Investors have been trying to interpret a series of comments from Federal Reserve officials over the prospect of its monetary stimulus program. The yield on 10-year Treasury note fell to 2.69%, almost a six-week low, while Germany’s 10-year bond yield lost 4 basis points to 1.88%.

High Income Economies… U.S. single-family home prices increased at their lowest pace in nearly a year this July, as rising borrowing costs began to weigh on the market. The S&P/Case Shiller composite index of 20 metropolitan areas, rose 0.6% (m/m sa) on a seasonally adjusted basis in July, down from the 0.9% increase in June. Compared to a year earlier, home prices were up 12.4%.

Global credit appraiser Standard & Poor's Ratings Services maintained South Korea's sovereign credit rating at "A+" with a "stable" outlook, citing its favorable policy environment, sound fiscal position, and net external creditor position. Consistent current account surplus plus the internationally and actively traded won has helped mitigate risks arising from the foreign-currency indebtedness of the country's financial sector. In addition, the government has mostly seen surpluses since 2000, with government debt being projected at 23% of GDP in 2013. Nonetheless, the chief weaknesses in Korea's credit fundamentals are contingent liabilities and geopolitical risks on the Korean peninsula.

Riding on optimism that the operating conditions of firms will continue to flourish amid the strengthening economic recovery, German business confidence, as measured by the Ifo business climate index for the manufacturing sector, improved for a fifth consecutive month from 107.6 in August to 107.7 in September. Compared to August, companies assessed their current business situation as slightly less favorable, but their business expectations were relatively more optimistic.

The Netherlands remained in recession in Q2 as GDP contracts for the fourth consecutive quarter. Although GDP fell 0.1% (q/q sa) in Q2, it had improved from Q1’s 0.4% contraction. The construction, financial institutions and business services sectors were among those that grew, while the agriculture, hotels and restaurants and transport and storage sectors declined. In annualized terms, GDP contracted 0.3% (q/q saar) in Q2 and 1.4% in Q1.

Developing Economies… East Asia and Pacific: Malaysia’s leading economic index, a gauge of advance economic performance, declined for the second consecutive month in July, falling 0.3% from the previous month. This negative movement was triggered in part by a decline in the sub-indicators measuring housing approvals and expected sales value in manufacturing, which fell 0.4% and 0.3% respectively. A 0.2% decline in imports of semi-conductors contributed also to this negative movement. Year-on-Year, the leading index rose 2.5% in July, a slower pace than the 2.7% increase posted in the previous month.

Europe and Central Asia: Hungary’s central bank reduced further its key benchmark interest rate, the two-week deposit rate, by 20 basis points to 3.6%, following a similar cut last month. With this cut the central bank extends an easing program that has been in place for more than a year, as economic activity remains subdue and inflation is low.

Latin America and the Caribbean: Brazil’s current account deficit widened sharply in July, rising to US$9.0bn (y/y) from US$3.7bn the previous year. In the seven-month period to July, Brazil has accumulated a current account deficit of US$52.5bn compared to a deficit of US$28.9bn in the same period a year ago. At the same time foreign direct investment in Brazil dropped in July, falling to US$5.2bn from US$7.2bn in June.

On another front, Brazil’s consumer confidence index rose to 114.2 in September from 113.1 in August and 108.3 in July. This increase, which brought the consumer confidence index to its highest level in seven months, reflected households’ favorable assessment of the current economic situation.

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